The Securities and Exchange Commission (SEC) prioritized settlements and admissions of guilt over heavy monetary policies in its enforcement actions this past fiscal year.
The SEC brought 91 enforcement actions against public companies and their subsidiaries in fiscal year 2023, increasing last year’s tally of cases by about one-third. Chair Gary Gensler and his staff also achieved above-average levels of cooperation and admissions of guilt from defendants. But the value of monetary settlements fell to $1.3 billion, the lowest total in eight years.
The data appeared in SEC Enforcement Activity: Public Companies and Subsidiaries—Fiscal Year 2023 Update, a report by Cornerstone Research and the NYU Pollack Center for Law & Business.
“Nearly 70% of public companies and subsidiaries that settled in fiscal year 2023 cooperated with the SEC,” said Stephen Choi, the Bernard Petrie professor of law and business at New York University School of Law and director of the NYU Pollack Center for Law & Business. The SEC also obtained 16 admissions of guilt, which has been a focus of Gensler’s time at the commission.
SEC leadership has also emphasized robust penalties for bad actors. But the average settlement per action for fiscal year 2023 was $15 million, the smallest since 2015 and $27 million lower than the 2022 average of $42 million.
Part of the reason is that the commission is aggressively rewarding meaningful cooperation, “which frequently resulted in zero or substantially reduced penalties,” said Sara Gilley, a Cornerstone Research vice president and co-author of the report. Of cooperating defendants, 13% had no monetary settlements imposed.
According to law firm K&L Gates, “an important driver in whether a penalty is imposed is whether the entity promptly self-reports potential misconduct upon learning it or not.” The current SEC also considers “the extent to which the entity provides information to the staff as it investigates the matter.”
Issuer Reporting Cases Increase
Faulty issuer reporting and disclosure continued to be the most prevalent allegation type, accounting for 45% of all actions filed in fiscal year 2023 and about 1.5 times as many actions as 2022. Broker/dealer cases were the second most prevalent, followed by allegations related to the Foreign Corrupt Practices Act.
The SEC also brought five new actions against public companies for failing to disclose insiders’ company stock transactions and holdings on a timely basis.
The SEC brought a record number of actions in a single month, 31, in September as its fiscal year drew to a close. That included nearly 20 in the final week of September.
The aim of SEC officials is often to bring a record number of cases each year, said David Kotz, former inspector general of the SEC who spoke at the Strategic CFO Forum last week to discuss the Madoff investigation. But that can be an incentive to bring smaller cases that are easier to win, said Kotz, compared with large-scale frauds that may take several years to settle and often involve “a heavily funded defendant.”
The SEC continued to bring most of its cases as administrative proceedings in 2023 (92% of all actions), despite a challenge to the commission’s use of administrative law judges currently being challenged in the U.S. Supreme Court.